Lilo & Stich . has asked for help preparing its master budget for the third quarter of 2020. At June 30, 2020, the company's general ledger account balances were:

Cash

Accounts Receivable Inventory

Buildings and Equipment Accounts Payable Common Shares Retained Earnings

a. The gross margin is 40% of sales.

$ 6,500 35,000 18,450 225,000 38,750 200,000

39,356

b. Actual sales for June 2020, and budgeted sales for the following four months are as follows: June July August September October

$90,000 $85,000 $92,000 $104,000 $75,000

c. 30% of sales are for cash. All payments on credit sales are collected in the month following the sale.

1. Each month's ending inventory should equal 25% of the following month's budgeted cost of goods sold.
2. 20% of each month's inventory purchases is paid in the month of purchase; the balance due is paid in the following month.

f. Monthly cash expenses for selling and administration include commissions of $9,000; rent of $2,500; and other general operating expenses equal to 12% of sales.

g. Equipment is scheduled to be purchased for cash in July ($10,000), in August ($35,000), and in September ($3,000).

h. Depreciation is calculated quarterly, in the last month of each quarter. For Q3, 2020, total depreciation will be $7,800 and includes depreciation on new assets acquired during the quarter.

i. The company needs to maintain a minimum cash balance of $5,000. An agreement with a local bank allows borrowing at the beginning of each month, up to a total loan balance of $50,000. The interest rate is 4% per month based on the outstanding balance at the end of the month. Interest must be paid at the end of each month on the outstanding balance due. Whenever possible, partial principal repayments will be made.

Required: Label each part of your answer with the numbers below.

Create the following 5 budgets. Label each with the corresponding number. Use columns headings: July, August, September, Quarter 3

1. Schedule of expected cash collections.
2. Merchandise purchase budget.
3. Schedule of expected cash disbursements for merchandise purchases.
4. Schedule of cash disbursements for selling and administration.
5. Cash budget.